2021 Best Practices Conference: Managing Your Investment and Retirement Plan Committees

“Establishing a retirement plan committee, or committees, is part of establishing the right governance structure for plan sponsors,” George Sepsakos, principal, Groom Law Group, Chartered, told attendees of PLANSPONSOR’s virtual 2021 Best Practices Conference.

Panelists were asked how committees should be structured.

Kevin Skow, vice president, retirement plan consultant regional director at Francis Investment Counsel, said the majority of his experience has been with clients that have one committee. “One employer had two and they spent a day and a half catching up about things,” he said. “If there are two committees, sometimes they don’t know what the other is doing; they can’t collaborate. It is important for all parties [that make decisions for the plan] to have exposure to the issues and what is happening, even if there are two committees.”

Sepsakos said he thinks the most important thing is to have a committee structure that fits with the organization.

“If that means having one committee that focuses on investment but delegates administrative functions to persons in benefits or HR [human resources], that makes sense,” he said. “We see that often. On the administration side, there needs to be someone involved that has a day-to-day role with the plan.”

Sepsakos added that larger plans might have an administration committee that handles claims and makes sure various other functions of administration are covered. But, he noted, “it is important for there to be dialogue between the two committees.”

He also said plan sponsors might form subcommittees for specific projects, including, for example, a recordkeeper search.

Committee Members

Who is appointed to the committee is important, said Sepsakos. He added that sometimes the roles and titles for who is on the committee are hardwired in plan documents.

Committees can be appointed in different ways; however, it is common practice for a company’s board of directors to appoint people to the committee, Sepsakos said.

The retirement plan document identifies who the plan administrator is, and it’s usually the employer, which is tied to the board of directors, Skow noted. “If [the employer or the board of directors] don’t know what is happening, they can’t identify issues,” he said.

However, Sepsakos said there are reasons to have people on the committee other than board members. “Others will have different views and that will give the board time to work on business practices,” he said. “Board members won’t typically have the time or expertise to focus on retirement plan issues, but they need to be kept in the loop.”

“It’s important to make sure you have people on the committee that are engaged and willing to dive in,” Skow told attendees. “They don’t need to be investment professionals; they just need to have an interest. Have someone from the executive team, in-house or outside counsel, people involved in day-to-day administration of the plan from the HR or benefits team, and maybe some non-voting members.” He also noted that his firm provides fiduciary training to committee members and tests them on it.

Having representation from different demographics of the employee base can help with plan decisions, Skow said. “An added bonus is it can create an interest in the plan among other participants,” he said.

Skow added that smaller plan sponsors often have board members or top executives sit on the committee, but that’s not always the case in larger organizations. “That’s why it’s important to take notes and present the notes to the board and company executives, so they can be informed,” he said.

Meeting Frequency and Documentation

According to Skow, it’s most typical for committee meetings to occur quarterly.

“Some plan sponsors that hire investment managers think their committee doesn’t need to meet as often, but I think that’s a mistake,” he said. “They still have a duty to monitor that investment manager.”

Documenting committee meetings is important, Sepsakos said. In addition to keeping the board and company executives informed, if the plan is subject to a regulator investigation or if a lawsuit is filed, the committee will have a record of its process.

Skow said documentation needs to be brief and stick to the facts. “Identify action items and what decisions were made, note whether there was a forum and a vote on any issues,” he said. “If a plan sponsor has multiple plans and one committee overseeing both, bifurcating notes could be beneficial if there is an issue with one plan but not the other.”

“Minutes need to be detailed enough to reflect key decisions and rationale, but [vague enough to] avoid certain details, for example, ‘Sally voted one way and Tom another,’” Sepsakos said.

Skow said committees need to identify who will take minutes and where the documentation will be kept.

Sepsakos said he is a proponent of having a digital archive on plan sponsors’ servers that is solely dedicated to plan activity, and that’s where committee documentation should be stored.

“Paper files can get lost or missing, or we can go through a pandemic and it’s hard to get to those files,” he said. “If a regulator or a court asks for documentation and a plan sponsor can pull it up quickly, that shows the sponsor has a streamlined process.”

In addition, having a digital area for documentation can help when there is turnover among committee members, which is inevitable, Sepsakos said.